Last October, Matthew Hougan, CEO of Bitwise Investments, predicted that spot bitcoin exchange-traded funds (ETFs) would attract $55 billion in assets within five years. Less than a year later, by late August, the 10 new bitcoin ETFs approved by U.S. regulators had already amassed over $52 billion, according to data from TrackInsight.
Reflecting on this swift growth, Hougan remarked, “Clearly, I wasn’t being bullish enough. This is going to be an area that we measure in hundreds of billions of dollars.”
Volatility and Speculation
However, the journey toward bitcoin’s acceptance as a mainstream asset is far from certain. Bitcoin’s price has been notoriously volatile since its inception 16 years ago, leading some market observers to liken it to speculative assets such as art or fine wine rather than stable commodities like gold.
Morgan Stanley’s Milestone Decision
A significant step toward broader acceptance occurred in August when Morgan Stanley allowed its network of 15,000 financial advisers to actively recommend two bitcoin ETFs—the iShares Bitcoin Trust and the Fidelity Wise Origin Bitcoin Fund—to clients. John Hoffman, head of distribution and partnerships at Grayscale Funds, emphasized the importance of understanding these products, noting, “It is now unacceptable not to do due diligence and the work of understanding these products.”
Retail vs. Institutional Investors
To date, retail investors have primarily driven the inflows into these new ETFs. Only a few large institutions, such as Wisconsin’s state investment board and some hedge funds, have publicly disclosed their positions.
Sui Chung, CEO of CF Benchmarks, which developed the bitcoin index used by several ETFs, highlighted the initial wave of adoption: “The first $50 billion has come from people who understand bitcoin well. Now we’re seeing the next stage: people on the risk committee at Morgan Stanley being dragged, kicking and screaming, to this decision when advisers can’t tell their clients ‘no’ any longer.”
Challenges to Mainstream Integration
While Morgan Stanley’s early adoption is significant, it also underscores the challenges that crypto ETFs face in becoming a mainstream investment option. Andrew Lom, an attorney at Norton Rose Fulbright specializing in fintech, remarked, “They’re being hailed as cutting edge for doing this, and that reminds us that by being early movers, they’re also being seen as being risky.”
Lom pointed out that liquidity and integration into model portfolios would be the true test of whether these ETFs achieve mainstream status. “At some point, people start to think and talk about it as part of the normal investable universe, and then you’ll see the modern portfolio theory folks start considering what allocation to give it.”
However, even bitcoin’s most ardent supporters acknowledge that such integration is still at least six to 12 months away.
The Uncertain Path for Ether ETFs
Ether’s Slower Start
While bitcoin ETFs are gradually moving toward mainstream acceptance, the outlook for spot ethereum (ether) ETFs is less clear. As of late August, about a month after their launch, ether ETFs had attracted nearly $7 billion in assets, with BlackRock’s iShares Ethereum Trust leading the pack with $900 million.
Despite this, ether ETFs lagged behind their bitcoin counterparts. Adrian Fritz, head of research at 21Shares, which launched a spot ether ETF in late July, observed, “A lot of people were excited until the launch, and then it became a kind of ‘sell the news’ event.”
Ether’s Unique Challenges
Ether’s different nature adds complexity to its adoption as a mainstream asset. Sui Chung of CF Benchmarks explained, “If bitcoin is digital gold, then ether is digital oil. The reason ethereum might increase in value is that people might need it to move assets around the digital network, just as people use oil to make the real world work.”
This hybrid nature of ether necessitates additional research and due diligence from both regulators and investors, which may slow its path to widespread acceptance. As Chung noted, “The sales pitch will be longer and more complicated.”
Conclusion
The rapid rise of bitcoin ETFs suggests a growing acceptance of cryptocurrencies in mainstream finance, yet challenges remain, particularly for ether ETFs. As the financial world continues to adapt to these new products, the coming months will be crucial in determining whether they can fully integrate into the broader investment landscape.
